Corporate currency hedging and currency crises
We examine the impact of corporate currency hedging on economic stability by introducing hedging activity in a Mundell-Fleming-Tobin framework for analyzing currency and financial crises. The ratio between hedged and unhedged firms is modelled depending on firm size as well as hedging costs. The results indicate that, with an increasing fraction of hedged firms in an economy, the magnitude of a crisis decreases and from a specific hedging level onwards currency crises are ruled out. In order to improve corporate risk management access to hedging instruments should be made possible and hedging costs should be reduced.
|Date of creation:||Apr 2005|
|Date of revision:|
|Publication status:||Published in Darmstadt Discussion Papers in Economics . 147 (2005-04)|
|Note:||for complete metadata visit http://tubiblio.ulb.tu-darmstadt.de/27194/|
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- Ingo Fender, 2000. "Corporate hedging: the impact of financial derivatives on the broad credit channel of monetary policy," BIS Working Papers 94, Bank for International Settlements.
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